Wellesley WeeklyWatch – ‘No-deal’ rhetoric rises

20 October 2020

Stock Take

No-deal bluff?

How will markets be impacted by a no-deal Brexit? One indication came this week, when markets held steady following Prime Minister Boris Johnson’s comments on Friday that the UK should prepare to end its transition period at the end of the year without a trade deal. The PM’s pointed comments caused a stark rise in no-deal Brexit rhetoric, but the subdued reactions on markets could be a sign that investors are unphased by the prospect (or, otherwise, a sign that they suspect it to be an eleventh-hour bluff – time will tell!).

Time is ticking for fiscal stimulus

Another country that is struggling to form an agreement before an important deadline is the US, where the fiscal stimulus bill is being battled over by Democrats and Republicans. Despite both sides agreeing on the bill’s importance, it’s looking increasingly unlikely that a deal will be agreed before the Presidential Election on 3rd November. Over the weekend, Speaker Nancy Pelosi said the deal must be agreed within 48 hours if it is to stand a chance of passing before the election. Meanwhile, polling data continues to point towards a comfortable win for the challenger, Joe Biden.

Tech companies spark life into US stocks

US stocks began the week positively, propelled by large technology companies. One such company was Apple, which unveiled its new iPhone 12 on Tuesday, and excited customers and industry observers in the process. The new phone is the brand’s first to work on faster 5G networks, a prospect that’s expected to encourage lots of upgrades, as well as the advancement of 5G technology more broadly.

Mark Baribeau from Jennison, Co-managers of the St. James’s Place Balanced Managed fund, commented on the iPhone 12:

“The launch was particularly interesting for many reasons beyond the integration of 5G technology. Most notably, the US carriers [mobile network providers] are very much on board to help drive a powerful 5G upgrade cycle, as evidenced by increased carrier subsidies and even the presence of the Verizon CEO – the last time a carrier CEO appeared at an Apple launch event was the unveiling of the original iPhone!”

He added:

“Apple’s stock has enjoyed a powerful move this year partly based on the growing anticipation of a 5G supercycle. However, looking forwards, a powerful upgrade cycle in iPhones and Apple’s earnings could support the higher multiples the stock now trades upon.”

COVID-19 continues to threaten economies

While large technology companies are thriving, the overall health of the world economy is much more mixed. Last week, governments around the world were urged by the International Monetary Fund not to end their relief packages prematurely – the Fund also warned that the pandemic is likely to cause “lasting damage” to living standards around the world.

The world is eagerly awaiting a viable vaccine for the virus. So, hopes rose and fell last week as various trials progressed or hit roadblocks. While Johnson & Johnson paused its trials after a participant fell ill, a joint effort between Pfizer and BioNTech said it would apply for emergency use authorization of its vaccine if it receives positive data from its late-stage human trials.

While the potential vaccines are being put through their paces, case numbers continue to threaten economies around the world. Local restrictions were implemented in several parts of the UK last week, as it entered a tiered COVID-19 alert system due to rising numbers of cases. Today it was announced that Wales will go into a national lockdown from Friday until 9th November. A 9pm-6am curfew was also imposed on Parisians last week, as well as residents of other major French cities. European stocks dropped on Thursday, but they recovered some of those losses by the end of the week.

China bounces back

While the picture is gloomy in parts of Europe, it’s decidedly different in China, where the country’s economy has rebounded successfully. China raised around $6 billion through bond sales last week, which were sold for the first time to a wide pool of US investors, in a sign that international markets have faith in its continued recovery.

The certainty of uncertainty

This year has provided another stark reminder that uncertainty is part and parcel of investing. The ongoing threat of COVID-19, plus the US election and various Brexit deadlines, provide scope for more worrying headlines to dent investor confidence in the weeks to come. But the lack of investor consensus on the future also creates opportunity, says Geoff MacDonald, Portfolio Manager at EdgePoint, which co-manages global funds for St. James’s Place. He continued:

“The reality is that an investor needs the discomfort of uncertainty. There’s serenity to investing when one realizes this fact. Uncertainty allows you to have a view about a business that others don’t.

“If there was perfect certainty, others would share your views. But, if everyone shared your views, there would be no undervalued securities to buy. You’d have no positive surprises and no positive outcomes – just the risk-free rate of return. So, in the world of investing, don’t ever crave certainty as it won’t get you very far.”

Wealth Check

While it is clear that Britain’s public purse isn’t in it’s healthiest state, a damning new report has said that tax rises are ‘all but inevitable’ in order to stop its debt costs spiralling, after heavy spending to deal with COVID-19.

According to the Institute for Fiscal Studies (IFS), the UK faces tax rises worth £40 billion a year by the middle of this decade, while the think-tank also forecasts Government borrowing to reach £350 billion this year – the highest level in peacetime in more than three centuries.

Therefore, a hike in Capital Gains Tax is still thought likely to be on the government’s mind as a potential revenue-raiser. If so, it’s one more reason to make the most of pension and ISA tax wrappers that shelter any future gains from further tax liability. Recent news that a review of tax relief on pension contributions is off the table for now has also underlined the importance of using these valuable annual allowances to get the most from our savings.

Claire Trott, Head of Pensions Strategy at St. James’s Place, commented:

“Earlier this month saw the deadline pass for issuing pensions savings statements to savers (for contributions in excess of £40,000) that confirm the amount of contributions paid into a scheme during the last tax year. That’s a good basis for assessing unused allowances that could be utilised in this tax year.

“Every year we see clients leaving paying contributions to the last minute, but for those taking advice there is no need in most cases to leave it that late. The hassle of trying to ensure contributions are paid at the right time, and allocated correctly, is a worry that can usually be easily avoided.”

For pension savers, now is a great time to consider any available unused allowances in good time before the end of the tax year. For more information, speak to your Wellesley Adviser.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

The favourable tax treatment given to ISAs may not be maintained in the future as they are subject to changes in legislation.

In the Picture

The eyes of the world are on next month’s US Presidential Election. Recent polling suggests that most people in the Asia-Pacific region are hoping for a Biden victory – however, Taiwan bucks the trend, by favouring the incumbent. One reason for this might be because people there expect Trump’s anti-China rhetoric to translate into support for the island if tensions with China increase.

The Last Word

“Elections aren’t always great at bringing people together, but they also don’t need to tear one another apart.”

– New Zealand Prime Minister Jacinda Arden calls for unity after winning a second term last week.

The information contained is correct as at the date of the article.

EdgePoint and Jennison are fund managers for St. James’s Place.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

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